Power Corporation of Canada

Thank you very much, operator and welcome, everyone to our results call for the first quarter of 2022. I will turn your attention to the caution versus forward-looking statement and non-IFRS statements on Page 2 and Pages 3 of the presentation.

We will see that with me on Page 4, is Greg Tretiak, Executive VP and Chief Financial Officer of the corporation. You have Page 6 of the presentation, various documents related to Power Corp.

Great-West Life, IGM and GBL that you can make reference to regarding recent presentations and our quarterly results. Turning then to Page 7.

I would characterize the quarter. Overall it was actually a strong quarter.

we are we are on track in terms of our business plans. The underlying earnings of those businesses that are earnings driven were actually very solid, fair bit of noise in the statements with GBL and with some of our assets at the power level.

But underlying earnings were strong. Markets overall, don't need to tell anybody on this call, in a downfall at this point, that hurts us in the sense that we have a lot of our fees that are attached to market levels across our businesses.

We are happy with that business model. It helps overtime, but you also live through it when you go through downturns in markets, which we are going through right now, and that doesn't put us off at all in terms of our strategies or what we are trying to pursue.

But it does create some volatility in the earnings. It also affects some of our seed capital and some of the businesses, where we do have investments in seed capital.

Another big story of course, is interest rates that are coming up over time that will help Great-West Life business Great-West Life is runs a great match book. But as we write business, on the insurance side of the business, at higher rates that will be good for returns.

Obviously, we are all like everyone else, hoping that authorities can raise interest rates without throwing the whole economy into a recession and still tame inflation. And we will wait to see how they do on that front.

So with that, I would just also point out on the opening page on seventh, we remained active in the second bullet point there with a number of announcements during the first part of the year, putting some transactions at the GBL level and we were active in our share buyback program, which we announced started with 1.1% of the shares having been purchased year-to-date. I will turn to page 8.

The numbers you all know - our business, when you get in times like this really underlies and underscores the need for advice and for well constructed portfolios. And that is what we do across our business, whether it is on the individual side or it is on the group side.

And so it plays into our hand and underscores the need that people have. Now when you have a market going straight up, it is easy and people can get pretty confident about what they are doing to get into periods of risk, the value advice becomes more important.

I'm going to turn it to Greg Tretiak to cover the next few pages. And Greg, over to you.

Thank you, Jeff. I'm going to go straight to Page 9.

I guess is the first page here. And the only point there is we did - the board did declare a dividend yesterday of $0.495.

And with that I'm going to go to the more detailed slide on the results on Page 10. And looking at the right hand panel, as you alluded to earlier on Jeff in your remarks, the earnings that are publicly traded operating companies were strong in the quarter, you can see Lifeco at 539, which - but up about nine 9%.

IGM had a record first quarter and they were up about 8% with their 135. You did speak of noise in the earnings and at JBL actually, their cash earnings were up 25%, they were about $28 million, at least our share of that was $28 million versus $22 million in the prior quarter.

And there was some noise obviously from the fair market value of Webhelp going up in this JBL portfolio and with the fair market value of that asset going up there is a liability associated with the non controlling interests who have put rates and in the quarter that was about $43 million negative so a fair amount of noise and JBLs number there. All-in-all, though you can see from the publicly traded companies, 686 versus 655.

So a good strong quarter in terms of earnings. The other area where there was a significant amount of noise within our alternative asset management platforms and that was principally generated by the activities in our China Equity Fund, which is managed out of Shanghai with under the auspices of power sustainable capital.

And there, you can see that there was a negative $86 million of that 70 million was from losses realized in the portfolio during the first quarter. And those losses are on a realized basis, these are available for sale securities in accounting language, so only on realizations, do we book anything through the P&L.

You can see in the previous year, there was 255 of such gains and earnings and of that 225 had come from China, when the markets were performing really strong last year at this time. So the next item, China Asset Management, a good quarter again, with China Asset Management.

The $13 million is the same as prior year. However, there was a seed capital mark in the quarter of about $2 million, so their earnings were up in the quarter, as well.

In the corporate operations, for those of you who have done through the MD&A, you'll find that as far as our operating expenses, they were about $36 million in the quarter. And that is spot on with where we basically got our run rate to after our - achieving our $50 million in cost savings last year.

So that rounds out, I think the comments I would make on this particular page. And Jeff mentioned, obviously the buyback and the opening comments, and you can see that our average shares for the period are 675.8.

Go to Page 11 quickly. And after three weeks of AGMs and analyst calls, I don't know that there is any surprises here.

You would have certainly seen most of these marks through the publicly traded companies for sure. I would just make a couple of comments on geography here.

Because in the later slides, we have more color on each one of these investments and holdings. In the cigar portfolio, of course, as well, simple and last week at the IGM Meeting they had recorded a reduction in their evaluation of wealth simple at about 20% and at our level at PCC for, PCC direct holding that is about $0.22 on the 49.92.

And net asset value per share number that we have there. Power sustainable, the China equity fund is in that number.

And it is a little over 50% of that number. And of course it reflects the recent declines in China.

And then I think the other one of note is in the standalone businesses and we have a slide on this later too, which is Leo and certainly Mark, but last week spoke about his business constructively, especially the delivery and the supply chain. So with that, Jeff, I would turn it back to you.

Okay thank you Greg. The next I guess Pages 12, 13, and 14, I will skip over.

Most of you on this call will be well aware of our strategy. I just remind you, we do keep a few pages in our quarterly earnings deck to find a lot of people who are especially new people to the group and new investors will go to the latest quarterly result to see what is going on.

And so, having some of the standard pages on our strategy puts everything in context, but for those of you who follow us regularly, it is old hat that is why they are there. On page 15, just a few more comments on the earnings growth at Great-West Life and IGM.

As I said, a good strong earnings growth at Great-West Life and it was - and the integrations are on-track across the board. I will talk more about that, about that in the moment.

Earnings were a little bit more from Europe and the insurance business, Canada and the U.S. that there is nothing there of any kind of a theme to that.

It is just simply the way that the earnings come out in any given quarter. But we believe that, we are on-track with all of our strategies at Great-West Lifeco.

IGM had a strong quarter. The first quarter is one that I find the street tends to under or overestimate kind of consistently I would like to go back and do a study on that.

I'm pretty sure I'm right. Fees are collected on a daily basis.

Compensation and trailers are paid on a monthly basis. About two less days in the first quarter, it sounds silly, but that is like several million dollars.

It can account for a few cents. And then there is seed capital of course particularly at Mackenzie so when you get a down market, you get a mark on the seed capital and that accounts for most of the noise.

But basically, it was - and from our perspective, it was a strong quarter from earning. In terms of the flows at IGM.

The whole industry now you will see from effect numbers and not surprisingly given the volatility and the weak markets, you are getting weaker flows into investment products, but IG Wealth continues to progress. And we are really pleased with the strength of that franchise.

We sort of telegraphed it last year that we thought that there was momentum building. And we certainly saw that with continued strong flows, relative to the industry overall at IG Wealth.

So, that is a comment on those two companies. A quick comment on the brand.

We launched the Canada - I'm on Page 16 now. We launched the Canada Life brand, not that long ago.

And in our recent survey of the value of brands, it was ranked in the top five brands in terms of value. And that is the first time in insurance company has ever been in that position.

Really pleased with the way that we have consolidated the three brands into one and that roll out that brand and we look for more brand equity being built in the future on Canada Life. On the right hand side, this is a JD Power investor survey, and it just points out IG Wealth is well, and it underscores the comment I just made.

This is the highest that I have seen IG Wealth in a long time from an investor survey, in this case higher than branch or full service investment banks, owned by the big five banks and the industry average overall. So, just another little touch point and evidence point of the progress being [Technical difficulty] Page 17.

Obviously we have been talking a lot about Empower. We are extremely excited about Empower.

The quarter was affected by lower markets. It was also affected by a buildup of some expenses on the sales side on the retail side.

We are rolling over and integrating the tools from personal capital into Empower’s DC business, but also its retail business, where they have retail clients that they bring over from the DC platform. And there was a big buildup of sales staff during the first quarter advisories in effect, and without the corresponding revenue.

So that impacted business. And I think the company made the point during their call but just to repeat it.

The synergies on the mass mutual transaction are going to be a little bit barbell, when you first have a transaction close, you have enough a number of initial surveys relating excuse me, related to staff and other expenses you can save. And then you run on multiple systems.

The employers and the employees of Mass Mutual migrate in waves. There are eight waves I believe, are done over time.

And it is not until you migrate everybody that you can turn all those systems off and you got a lot of payments you are making to Mass Mutual for keeping the systems alive. So the synergies tend to be barbelled but the 160 million that was announced by Great-West Life and Empower the company is right on track with the progress has been made there.

And so as I mentioned, the really exciting thing is we are starting to take the personal capital tools and roll them into the Empower DC platform, the Empower retail platform, and they are starting to get turned on, which is seems pretty excited about that. Okay, on a page 18 about the retail business of Empower.

You can see that on the left hand side of the page, we have now with the acquisition of prudential 17 million Americans and our plans 1.4 trillion U.S. in those plans, about 6% of that is eligible to roll into retail accounts every year by people who change jobs, who retire.

And then you have got the ability to go out and reach into their individual savings, and investing accounts that are outside of the plan. That drives a big potential retail opportunity that we are trying to take advantage of and serve our clients in a more complete way.

On the right hand side of the page on the dark blue, you see the buildup of our efforts in that regard, going from 5.5 billion up to 25 billion at the end of Q1 2022. And then in the light blue at the top you see the addition of the personal capital direct-to-consumer business that we purchased.

So we now have a business which at the end of the first quarter is a retail advising wealth management business of $48 billion. And even in the first quarter, the markets were down and we had growth in the assets under advisement there.

So you can understand there were good strong net flows through the quarter and those businesses. And we have said in Great-West Life have said on the roll up of the DC platforms that we have been doing.

If all we do is create a bigger more profitable DC business those transactions will be successful strategically and financially. If we can really execute on the wealth management strategy, which will take longer to execute and we have to prove we can do it.

Then those transactions will have been really terrific value creators for the company. So with that I will turn to Page 19.

Greg mentioned the point at the top. We just wanted to emphasize the underlying.

From GBL point of view, they look at cash earnings and then NAV. They have been not particularly earnings focused with their own shareholders, but we ended up reporting their earnings but the cash earnings were up 25%.

And they are involved in their own buyback program. And they are also, their strategy in part is to pivot to more private investments in a number of high growth sectors including health care.

And they invested 1.75 billion in two private health care businesses. After the end of the quarter, they were both announced in April, I think 25% of their NAV is now private, as opposed to public as a consequence of those investments and what they have been - good progress at GBL.

China asset management, I think you have seen most of this slide. The one thing I will point out is under the first bullet point, and if you are on the IGM call, they would have talked about it as well.

The China announced subsequent to year-end, the rollout of their third pillar of their pension system to remind people first pillar is government provided pension, second pillar is employer based pensions and those both been in existence in China and the third pillar is tax assisted individual savings. So think of RSPs in Canada, think of investment IRAs in U.S.

and that has not existed here to foreign China. We think, it is going to really open up the market.

We think companies like China, AMC are going to benefit hugely, and they announced rules to roll that out. It will take some time.

But they have got a number of pilots going on. There is a billion individuals who could potentially make contributions.

So this is a big deal long-term to the prospects for China AMC. On Page 21, staying on the China theme, Greg talked about the fact that we had some impairments in our China portfolio.

I think the China market - the index was down on first quarter - 20% in the first quarter. I think that is the first quarter, I don't have it in front of me, it might have been the first four months, but get down big time, you can see it on the chart.

And of course, the way we account for that if there are any realizations or any impairments, we don't fully market-to-market, but those could flow through the P&L. And so we had some losses, as Greg mentioned in the first quarter.

But this gives you the history of our initial $50 million investment in 2005. We have taken dividends back, the portfolio with some 900 million at the end of the year, it is down from there, of course today.

But this has been a great return for Power Corp. It is also now strategic and that we are bringing third-party investors in - back record of the team, you can see it referred to above 5% in excess of its benchmark and is both through security selection, sector selection and asset allocation, they will go to cash.

They have an active asset allocation methodology. So they will go to cash when they think that the market is overheated.

Moving forward, I won't spend any time on 2022. You know all of that is there kind of as a standard boiler plate on our strategy.

On 2023, I will just point out that when you look at our alternative asset management businesses and you focus on the, not on the GPs on the business, but on the seed capital that we have invested, which we have about 1.9 billion in NAV already know strategies. You can break them down in terms of how the earnings get realized, through going to overall groups this capital appreciation strategy.

So that would be private equity, venture capital, and the China portfolio. And we will tend to realize those gains as they are incurred.

The over overwhelming way we would recognize the gains is when there is a disposition, there can be impairments but the ordinary course is going to be episodic, when we realize a gains on that. And then you have got income strategies at the bottom of the page, private credit royalties, energy infrastructure and real estate, the targeted returns as well.

So just a little bit more on our capital underpinning, the seed capital and our commitments and how the earnings will emerge. We turn to the alternative asset management business as a business i.e.

the GP, the asset managers themselves, where we are looking to earn recurring fees. And you have got in that.

At the top of the table on the left, you have got cigar, in the first quarter $34 million in management fees. Not quite at breakeven.

There is a little bit of noise in the $38 million on the tax side. They are actually closer to break even than a run rate basis in the quarter.

And then you got the net carried interest, but we look at that third line kind of, how are they doing on fees, less expenses, and then the carry can go up and down depending on realizations or marks. And then you got the same thing for power sustainable capital.

On the right hand side, I think you have seen these charts before, up to $19 billion funded and unfunded AUM. Now the fee paying capital is not 19.

You have got it on the last bullet point. It is 11.4.

As you are probably aware in these businesses, you don't get paid on the appreciation of the asset value. You get paid on the initial commitments and in some cases you get paid on uncommitted, but for the most part, you get paid on committed capital, not uncommitted capital.

And on the bottom right hand side, you will see the very substantial progress that we have made, and the growth of these platforms has come from parties other than power. In fact, we have reduced our commitments to seed capital through various sales, which is the strategy that we explain to all of you and which we are executing.

And then just very quickly on Page 25, second bullet point. Continued with some good fundraising in the first quarter, year-to-date $763 million year-to-date, including into the first quarter and you get the breakdown by strategy on the bottom of the page.

On Page 26, Leon is one of our standalone businesses. Market value on technology companies of course has come off for some period of time right now, companies that are in development, where they got revenues, but no earnings for the foreseeable future.

Interest rates are going up. Those get discounted back at a lower level.

And so, market has been turning away from those investments and they have sold off, that is been the case with Leon in terms of its market value. The business we think is going really well.

It is a very strong business. At some point we will look to be realizing value, but at this point, our strategy is to make sure that the company continues to succeed and we realize the appropriate value and they are doing great progress and really continuing to build up their business.

So, we are pleased with the progress at Leon. Page 27 talks about buybacks.

I think I mentioned earlier in the presentation. We have bought back 280 million shares year-to-date, including a 105 million subsequent to the quarter end.

We got $1.2 billion in terms of available cash above the minimum two times fixed charges that we use as guideline. IGM has been doing its own buyback and GBL is also active in doing [Technical Difficulty] And then finally, before I roll it up, follow our discount here.

We are on a dogged pursuit to continue to simplify and as we do so, and continue to create value, get more people who understand what we own. We are convinced that, that discount can narrow in from, where it is.

It won't go on a straight line. They never do in the markets.

But we think we have got lots of room to create value, through narrowing of the discount. Page 29 you have seen before, it is a placeholder for overall our strategy.

And with that operator, I will conclude my remarks and ask you to open it up to questions from people that are on the line. Operator.

Hi, good afternoon. Just maybe some color on given the volatility in the markets, does that change your outlook at all for fundraising on your alternative platform?

In the near-term headwind perhaps and then maybe some color on what are you looking to - What funds, what strategies are sort of actively fundraising this year do you have any targets out there anything?

Yes. So it is a very good question, when we are asking ourselves, Graham.

Generally speaking, when markets aren't as strong, as you know, people are putting less capital to work. It will be interesting to see on the private side, whether that is true or whether we continue to see a lot of flows in the private markets.

Most of our strategies, with the exception of China are in private securities. So we are asking ourselves the same question.

It is a risk that we get into really weak economic conditions. I think that we want to be putting the money to work historically in some private equity type strategies when markets are weak, but that doesn't mean investors will necessarily act that way.

I do think, there would be some uncertainty in the short-term on what is going on in China. So that is not, that is a bit of a headwind in terms of fundraising there, even though we have got a great track record.

So you know, I guess you are asking me a crystal ball question. And I'm not quite sure we are asking ourselves the same question doesn't change what we are going to do.

We'll move through the stuff. We ended up with choppy markets for a period of time we just navigate through them and drive on with our strategy.

Fundraising is going on broadly. We have launched at power stainable, capital, we launched a new AG, sustainable ag fund.

So there is active fundraising going on right there. Cigar crosses platforms, is fundraising back to personal capital, they are looking for more assets to roll into the infrastructure fund.

So it is pretty broadly based. I don't think I have got any particular comments as to where there is a focus, and we'll wait and see how it goes.

There I can't be more specific, but -.

Excellent. Would you consider or are you actively looking at potential tuck-in acquisitions that were not in scale or maybe product, some further product bread breads to that platform or should we expect more just block and tackle organic growth to focus?

Yes. I think that we did that in cigar holdings, of course with EverWest.

Now, that was true Great-West, but there was a real synergy there. And I think we would be open to getting scaled through acquisitions.

But having said that, I wouldn't want to create an anticipation that we are about to announce something like that. But we are open to that.

When you launch new strategies, you go through, two years of a J curve where you have put the staff and put people in place, and you got losses, and then you get assets and start to get the fees building build out. And so you go through losses for two years.

If you buy a team with assets or an existing business, then you get P&L right off that. So it is more friendly from a shareholder point of view, and it gives you scale.

And so, we would look for those opportunities, but they got to be the right opportunities, they have to fit culturally, they got to fit into the product shelf. So we are open to that, but we don't have anything pending that I would want to talk about.

Fair enough. And then have you disclosed or would you disclose what your actual ownership stake is in your alternative platform because I know you have management entities like Great-West, all the entities after that I know that [indiscernible]?

Graham, I have no problem disclosing it. I want to make sure I don't answer the question if we haven't disclosed it already.

Because I don't want to get ahead of ourselves here on a call like that. Greg, I'm going to ask you the question.

On our level of disclosure, in terms of our ownership -. But the management ownership is a - general comment that is public management owns stake in each of cigar holdings and power sustainable capital, Great-West through the EverWest transaction came in for I think it is 8%.

So there is some dilution there. Greg, I'm going to ask you to answer the question in terms of disclosure of our ownership positions in each of cigar holdings in power sustainable capital.

Yes, it is in the MD&A Graham. So I don't have a page number for you.

But I'm sure, I could get one 20, there you go. So Lifeco got 6.6 in stock right now.

And of course management has an interest as well of nine.

Perfect. Okay that is helpful.

Thanks.

Hi good afternoon. Just had one question and maybe expanding a bit on Graham’s question on M&A.

Because, Jeff, you talked, I think it was a little while ago that you felt that the heavy lifting was complete in terms of improving the fundamentals that Great-West and IGM. And you were being able to focus more time on M&A.

And so unless you want to offer up some specific things that you are looking at, but just how would you describe the progress you have made on potential acquisitions? I know, you talked about maybe nothing imminent, but just where you are seeing opportunities and what you have been maybe looking at and also given what we have seen in the markets and interest rate movements.

Is that impacting any sort of processes you are looking at in terms of acquisition multiples and things like that?

Yes. Good question.

So if I start with Great-West, you go through phases Geoff, when you are looking at M&A and we spent 10 billion at Empower 10 billion Canadian over announced deals over 12.5 months in between, I think it was August of 2020 and August of 2021. And we are now in effect so that did two things.

The team at Empower now has three integrations going on simultaneously and the leverage ratios that are Great-West Life need to come down as we get the cash flows from those transactions. So we are in a, we went through a phase of rapid execution on getting the deals done.

And now there by necessity needs to be a period of focus on executing on the transactions. And we are executing well, but it is a lot of work on the team.

And so that - but that would continue to be an area of high priority. We do think that the U.S.

DC and adjacent wealth management opportunity is the biggest opportunity I think we have across the group. And I do think if we execute on it over time, will it really change the whole makeup of Great-West Life.

And I'm looking several years out here, not looking in a year or two. But I think it really changes the profile of the Company's earnings, and we end up with a - I think it will be a branded franchise in the U.S.

if we succeed at it. So, that is going to be the priority at Great-West.

I think we are at a point where, as we look elsewhere across Great-West Life, where do we have capital that is either not earning adequate returns or where the market is not valuing the earnings properly are areas that we would be looking to potentially not have as much capital in. So, I have talked about this before as well.

We are long-term shareholders, but we have been introducing a disciplined to - I think higher emphasis of looking through everything we do through the eyes of the capital markets. So Great-West is looking at his portfolio to say, do we have too much capital in businesses where the market is not appreciating or doesn't is not prepared to pay for those earnings levels?

So that is not a direct answer to your question. So that is kind of all, I'm going to say on Great-West.

We are always looking at tuck-ins across the board. We will continue to do that, whether it is Ireland or the UK or any in any market we are in, we are always looking for synergistic deals, but the priority's going to be around Empower.

When I turn to IGM, IGM is very interested in creating and broadening out its wealth management footprint. So, it is got IG Wealth, which is the big money earner right now.

It is got ambitious plans for IPC and Chuck has taken over at leadership there. And it would like to have a bigger presence in the high net worth market.

Completely aside from an IG Wealth Management is doing to move up market with its consultants, but really in the high net worth market. There to your question, multiples have been numb nuts.

Sorry, I don't know if that is a financial term, numb nuts, but it is the one we use.

I get it, don't worry.

They are just trading at multiples that you go, that is great, but like why bother. So we hope that, maybe a down market will bring some of those things back to more realistic levels and we can start to get active.

Your question, this is not an answer to your question, but I did not mentioned in my comments and I should have, as I'm on IGM, I mentioned Blaine Shewchuk in the quarter, very significant leadership changes at IGM with the retirement bearing McInerney and Luke Gould, taking over his Head of Mackenzie. He is going to be great.

And he has been around the company, he is well known to all of you. And then we have got Keith Potter moving in as CFO and Kelly Heifer moving over from Great-West as Chief Risk Officer.

So lots of good management changes at IGM. We were really pleased about and I neglected to mention that while I was making my comments.

Geoff, back over to you.

Perfect. That was all the questions I had.

Okay. Thank you very much.

Okay, I think we are good Operator, I think if there haven't been further questions, but we can probably terminate the call. So I would like to thank everybody for joining us today.

And wish you a pleasant afternoon. We will talk soon.

Operator that will do it for the call.

Thank you.